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Chandan Kumar v. United Western Bank ...

Madhya Pradesh High Court

May 10, 2011

Judgment

Subsequent
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Structured Summary of the Opinion

Factual and Procedural Background

This appeal arises from a judgment and decree dated 30-10-1996 passed by the 3rd Additional District Judge, Indore, in C.O.S. No. 59-B/93, decreeing the suit brought by the plaintiff bank. The present first appeal under Section 96 of the Code of Civil Procedure is filed by defendant No. 4 (the guarantor), challenging that decree.

Material facts as stated in the opinion:

The plaintiff is a bank operating a branch at 9, Pipli Bazaar, Indore; its Branch Manager at the relevant time was Shri Anil Goudbole who was authorised to file the suit.
Defendant No. 1 is a partnership firm whose proprietor is Shri Vijay Kumar Bang. Defendant Nos. 2 to 4 (including the appellant) are guarantors for defendant No. 1.
On 13-1-1992 the Bank allowed a cash credit hypothecation facility of Rs. 2.10 lac to defendant No. 1; a promissory note and guarantee documents were executed. The guarantors executed guarantees in the Bank's favour (the appellant's guarantee is exhibited as Exh. P-16).
The plaintiff alleges an agreed interest rate of 23.75 paise per annum and that the account shows utilization and irregular repayments. As on the date of filing the suit (19-4-1993) Rs. 2,90,002.40 was recoverable; notice was sent on 29-1-1993 and suit followed.
Defendant Nos. 1 to 3 filed a joint written statement; defendant No. 4 (appellant) filed a separate written statement admitting he gave guarantee up to Rs. 2.10 lac but contending that the Bank later extended the limit to Rs. 5 lac without his consent.
The Trial Court recorded evidence and decreed the suit against the defendants. The guarantor (defendant No. 4) appealed.

Legal Issues Presented

Whether Section 133 of the Indian Contract Act, 1872 (which provides that a variance in the terms of the contract between creditor and principal debtor made without the surety's consent discharges the surety as to subsequent transactions) is attracted in the present case.
Alternatively, whether the guarantee executed by the appellant is a continuing guarantee such that Sections 128 and 129 of the Indian Contract Act, 1872 apply and the appellant's liability remains co-extensive with that of the principal debtor despite the alleged extension of the loan limit.

Arguments of the Parties

Appellant's Arguments

The appellant contends he guaranteed the loan only up to Rs. 2.10 lac. The Bank, without obtaining his consent, extended the loan limit to Rs. 5 lac.
The appellant relied on Section 133 of the Indian Contract Act: because the loan-limit extension was a variance made without the surety's consent, the appellant was discharged as surety for subsequent transactions resulting from that variance.
The appellant relied on the testimony of the Bank's then-Branch Manager, Anil Goudbole, who allegedly admitted that the Bank did not obtain the appellant's consent to extend the limit.

Respondents' Arguments

The respondents submitted that Section 133 is not applicable because the appellant had executed a continuing guarantee (as evidenced by Exh. P-16).
Because the guarantee is continuing in nature, Sections 128 and 129 of the Indian Contract Act apply: the liability of the surety is co-extensive with that of the principal debtor unless otherwise provided.
Accordingly, the Trial Court correctly decreed the suit against the appellant and the appeal should be dismissed.

Table of Precedents Cited

The opinion does not cite any judicial case precedents. It does refer to statutory provisions and an authoritative statement from a legal treatise, but no reported cases are cited.

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court framed the only point for consideration as whether Section 133 of the Contract Act is attracted. The court's analytical steps, as set out in the opinion, are:

The court acknowledges Section 133's principle: if a material variance is made between creditor and principal debtor without the surety's consent, the surety is discharged as to subsequent transactions resulting from that variance.
The court examined the guarantee document produced by the appellant (Exh. P-16) and determined that the guarantee, on its face, is a continuing guarantee — i.e., one which "extends to series of transactions and is not exhausted by or confined to single credit or transaction" (the opinion expressly cites Halsbury's Laws of England, Fourth Edition, Para 101, for this descriptive principle).
Given that the guarantee is continuing in nature (as embodied in Exh. P-16), the court held that Section 129 of the Contract Act applies; and, read together with Section 128, the liability of the surety is co-extensive with that of the principal debtor unless the contract provides otherwise.
The court found that the impugned transaction (the extension of the loan limit) was a transaction unknown at the time the continuing guarantee was given; under a continuing guarantee, liability endures until the credit or transactions contemplated by the parties and covered by the guarantee are exhausted or until the guarantee is revoked.
Because the appellant had given a continuing guarantee and had not pleaded or proved that he did not give a continuing guarantee (i.e., no contrary contractual provision was pleaded or proved), Sections 128 and 129 governed and Section 133 did not operate to discharge the appellant.
The court therefore concluded that the appellant's plea based on Section 133 must fail, and the Trial Court's decree was not in error insofar as the appellant was concerned.

Holding and Implications

Holding: The appeal is DISMISSED. The court affirmed that the appellant remains liable on the guarantee and dismissed the appeal with no order as to costs.

Implications and direct consequences as stated in the opinion:

Because the guarantee (Exh. P-16) is a continuing guarantee, Sections 128 and 129 of the Indian Contract Act apply and the appellant's liability is co-extensive with that of the principal debtor.
The alleged extension of the loan limit by the Bank without the appellant's consent does not discharge the appellant under Section 133 because the guarantee covered a continuing series of transactions and the extension was a transaction that could be within the scope of such a continuing guarantee.
The appellant did not plead or prove that the guarantee was not continuing; absent such pleading or proof, the court applied the continuing-guarantee principle against the appellant.
No new legal precedent was declared in the opinion; the decision applies the cited statutory provisions and the established descriptive principle regarding continuing guarantees to the facts before the court, producing the direct effect of affirming the Trial Court's decree against the appellant.

This summary is confined to the statements and material contained in the provided opinion. No information not present in the opinion has been added.

Show all summary ...

The guarantor/defendant No. 4 has filed this first appeal under Section 96 of the Code of Civil Procedure against the judgment and decree passed by learned 3rd Additional District Judge, Indore, in C.O.S. No. 59-B/93, dated 30- 10- 1996 decreeing the suit of the plaintiff.

2. The facts necessary for the disposal of this appeal are that plaintiff-Bank is having its banking branch at 9, Pipli Bazaar, Indore whose Manager is Shri Anil Goudbole and who is authorised to file the suit. The defendant No. 1 is a partnership firm and its Proprietor is Shri Vijay Kumar Bang. Defendant Nos. 2 to 4 are the guarantors of defendant No. 1. A sum of Rs. 2.10 lac towards cash credit loan (hypothecation) was allowed by the Bank to defendant No. 1 on 13-1-1992. Eventually, the promissory note of Rs. 2.10 lac towards cash credit hypothecation loan agreement was executed. Defendant Nos. 2 to 4 executed and submitted guarantee in favour of Bank for indemnifying the loan and accordingly executed the documents.

3. It is the further case of the plaintiff that defendants agreed to pay Rs. 23.75 paise per annum interest. The account of defendant No. 1 is maintained by the Bank indicating the details when the amount of loan was utilized by defendant No. 1 and in how and which manner the same was repaid. A sum of Rs. 2,90,002.40 paise is to be realized from the plaintiff till date of filing of the suit, which was filed on 19-4-1993. The defendants had made default in depositing the installments and did not deposit the monthly installments regularly, hence the suit was filed after sending the notice to them on 29-1-1993. The plaintiff sought relief against all the defendants jointly and severally as prayed in the relief clause of the plaint.

4. The defendant Nos. 1 to 3 filed a joint written statement while defendant No. 4-appellant filed separate written statement. According to appellant, he submitted the guarantee to defendant No. 1 upto the limit of Rs. 2.10 lac. But the Bank without obtaining consent of this defendant (appellant) extended the limit of loan to the extent of Rs. 5 lac resulting into his discharge on account of variance in terms of the contract., The other .averments of the plaint were also denied.

5. Learned Trial Court after recording the evidence of the parties, decree the suit.

6. In this manner, this first appeal has been filed by the defendant No. 4.

7. The contention of Ms. Vandana Kashrekar, learned Counsel for appellant is that since without obtaining any consent from the appellant, the limit of loan was extended upto the extent of Rs. 5 lac, therefore, this arrangement would come under the provision of Section 133 of the Indian Contract Act, 1872 (in short "Contract Act") and if that would be the position since variance has been made without the consent of defendant No. 4 (surety) in terms of the contract between the principal debtor and creditor, the appellant has been discharged as a surety to the subsequent transaction on account of variance. Learned Counsel has also invited my attention to the testimony of Anil Goudbole who at the relevant time was Branch Manager of the plaintiff and has submitted that he has categorically admitted in his testimony that consent to extend the limit was never obtained from defendant No. 4-appellant and hence learned Trial Court has fastened the liability against the appellant contrary to Section 133 of the Contract Act.

8. Combating the aforesaid submission, it has been put-forth by learned Counsel for respondents that appellant is wrongly applying Section 133 of the Contract Act because the said provision is not applicable and the provisions of Sections 128 and 129 of the Contract Act are applicable in the present case because guarantee in the continued form was submitted by the appellant. Therefore, learned Trial Court did not err in passing the judgment and decree against present appellant alongwith other defendants and hence this appeal be dismissed.

9. Having heard learned Counsel for parties, I am of the view that this appeal deserves to be dismissed.

10. The only point for consideration to decide this appeal is that whether the provision of section 133 of the con tract act is attracted or not. True, under this provision if any variance is made without obtaining surety's consent in terms of the contract between the principal debtor and the creditor the said action took between the creditor and principal debtor discharges the surety as to the subsequent transactions on account of variance of the contract. However, if this provision is read conjointly with the document (Exh. P-16) exhibited by defendant No. 4-appellant, this Court finds that he has given the guarantee in the nature of continuing security. Since this fact has been embodied in the general form of guarantee (Exh. P-16) exhibited between the Bank and appellant and if that would be the position, I am of the view that learned Counsel for appellant is incorrectly applying this provision. On bare perusal of the guarantee form (Exh. P-16) executed between the Bank and appellant this Court finds that a continuing guarantee has been given by the appellant and if that would be the position,, according to me, Section 129 of the Contract Act would be applicable.

11. The continuing guarantee is one which extends to series of transactions and is not exhausted by or confined to single credit of transaction. Some other transaction may be unknown at the time of giving the guarantee (see : Halsbury's Laws of England Fourth Edition Para 101).

12. According to Section 128 of the Contract Act, the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. On bare perusal of the document of guarantee (Exh. P-16) this Court finds that a continuing guarantee was executed by the appellant and, therefore, under Sections 128 and 129 of the Contract Act, the liability of the surety becomes co-extensive with that of principal debtor. In the instant case, the impugned transaction of extending the limit of the loan amount was unknown when the guarantee was given by the appellant and therefore, according to me, since there is a continuing guarantee in favour of Bank executed by the appellant, his liability endures until the credit or transaction contemplated by the parties and covered by the guarantee is exhausted or until the guarantee itself has been revoked. Hence, the submission put-forth by learned Counsel for appellant cannot be accepted.

13. The contract of not giving the continuing guarantee has neither been pleaded nor proved by the guarantor-appellant and, therefore, according to me, these two provisions of the contract act are applicable in the present case.

14. No other point has been pressed in this appeal by the appellant.

15. Resultantly, this appeal fails and is hereby dismissed with no order as to costs.